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Member
Posts: 9
Registered: ‎02-01-2008
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Looking into Chapter 7, what to do with mortgages (1st/2nd)?

Let me start off by saying that my wife and I have NO bad marks currently on our credit report. Our scores are identical at 661 (equifax), which is because of our extremely high use of revolving debt. With about 40K in CC debt, being (seriously) upside down on our house, and monthly payments exceeding our income (even before servicing unsecured debt!)... We have decided it's time to file before we start missing payments.
 
The attorney we spoke to yesterday also serves as a Trustee so I do not doubt his knowledge of the system... however he isn't a credit expert. 
 
He is advising us to STOP making mortgage payments as the foreclosure process will take 10 - 12 months. We can save up that money and use it as a down payment on another house at that time (he gave me the number of a mortgage broker that could aid in this process). I really think we are going to look into renting instead...
 
Moral issues aside:
1) If the house is going to be foreclosed upon anyway, will it hurt our future credit rebuilding efforts to stop making these payments now?
2) Can a house be foreclosed upon by simply not reaffirming the mortgages (and being current on payments)?
3) At what point do we stop making payments? After discharge?
4) Is the double whammy BK/foreclosure hit on my credit report going to be as bad as I think it will be?
5) We are going to reaffirm a couple of items (again perfect payment history)... will this give us any sort of 'FICO' advantage? What about our perfect payment history prior to BK?
 
Thank you for any help!
 
Established Contributor
Posts: 953
Registered: ‎12-04-2007
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Re: Looking into Chapter 7, what to do with mortgages (1st/2nd)?

I will speak from my own experience here and maybe others will jump in.  You will recover from Bk quicker because you have good payment history prior to filing.  IMO, I would file BK and then let the house go back as a part of the BK process.  If you are planning to file immediately, then there is no problem here.  You can still live in the house rent free for those months it takes to foreclose and then find a place to rent while saving that money.  My house took 12 months to foreclose.  (michigan)  If you allow the missed payments to hit your credit PRIOR to your filing, then it will make recovery more difficult.  Now with FHA they want 2 years post BK to get another mortgage,  conventional wants 4 years clean history.  With foreclosure that time frame is longer.  (3 years for FHA, not sure for conventional)  But I would file immediately then then stop all payments.  That way your credit report will take the hit for BK but not for all the late payments prior to filing. 
Member
Posts: 9
Registered: ‎02-01-2008
0

Re: Looking into Chapter 7, what to do with mortgages (1st/2nd)?

Thanks for the tip! We went ahead and paid up for February as we aren't ready to file just yet (lawyer wants some things done). I'm begining to think that filing with perfect payment history is rare.
Established Contributor
Posts: 953
Registered: ‎12-04-2007
0

Re: Looking into Chapter 7, what to do with mortgages (1st/2nd)?

well there are those out there that do have good payment history and find BK tough to do.  But if you look at it as a business decision then it takes out the emotion involved in it.  My credit was so bad that filing helped it :smileyhappy:  And my recovery has been slow.  I missed mortgage payments and then filed and I took a double hit on the credit report, one for BK and one for missed payments and charge off prior to filing. 
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